What Is Bitcoin Halving and Is It Good?

There’s only one regular event in the cryptocurrency industry considered more sought-after than the Bitcoin Conference. Clue: it’s about as elusive as February 29.

It’s the halving.

But what is it?

How does it impact the crypto economy?

And should you care if you’re neither a Bitcoin miner nor an investor?

Keep reading to see why you need to keep at least half an eye on this momentous occurence.

What Is Bitcoin Halving?

The halving is an event where Bitcoin’s block subsidy – the amount of mintable BTC – decreases by 50%.

It happens about every four years. And it’s the Bitcoin protocol’s way of controlling the supply of new coins entering circulation.

Anyone who understands crypto knows that scarcity is core to the appeal of Bitcoin. It has a hard cap of 21 million tokens.

In theory, the Bitcoin supply limit isn’t as immutable as blockchain records. But this crypto’s governance model and incentive system have made it economically nonsensical for any powerful stakeholder to play God.

So, what is Bitcoin halving really for?

The halving, along with the hard cap, helps BTC stay valuable over time.

This phenomenon regulates Bitcoin issuance. It prevents miners from minting more BTC than they should as a reward for validating transactions. As a result, the halving makes the growth of Bitcoin’s minted supply predictable.     

These two concepts separate Bitcoin from gold.

The former’s maximum supply and minting schedule are known to the public. The latter is also finite, but there’s no telling how much of it actually exists.

Considering the role of BTC halving in the crypto’s tokenomics, it could have far-reaching effects on the industry as a whole.

Historically, this quadrennial event has been a catalyst for extreme price speculation.

Due to the scheduled subsidy reduction, investors anticipate a surge in demand. This compels crypto heads to hodl (“hold on for dear life”), propelling Bitcoin’s price to new heights and usually grabbing the interest of new buyers.

How Does it Work?

Written in the crypto’s source code, a Bitcoin halving event happens every 210,000 blocks.

If that’s the case, how do we know that the Bitcoin halving timeline is approximately four years?

Bitcoin doesn’t have a clock; rather, it is a clock. Its own timekeeping mechanism is the blockchain, which expresses time through blocks.

The Bitcoin protocol allows the creation of a new block every 10 minutes or so. To hit this target consistently, it would alter the mining difficulty and respond to changes in hashing power accordingly.      

High hashing power helps speed up the process of winning a block. The greater the number of miners participating in the network, the higher the collective hashing power.

Every 2,016 blocks, Bitcoin would recalibrate its blockchain. It would look back and check how fast successful miners were able to claim new blocks.

If the blockchain grew faster than intended, Bitcoin would make it mathematically harder to mine. But if network participants spent more time on it, it would do the opposite.

Since Bitcoin’s rollout in 2009, this recalibration system has worked like a charm. Over a decade’s worth of data shows that the average time to find a block has been 9.5 minutes.

In turn, every BTC halving cycle, like clockwork, spanned roughly four years since the first one in 2012.

The next and fourth Bitcoin halving will transpire at block 840,000. It will slash the current Bitcoin block reward and set it at 3.125 BTC. The crypto industry forecasts it to come about on March 15, 2024.

Bitcoin’s Halving History

Mined by Bitcoin creator Satoshi Nakamoto, the Genesis Block, also known as block 0, contained 50 BTC as subsidy. In other words, every successful miner was able to pocket 50 pieces of Bitcoin until block 210,000.

• First having: On November 28, 2012, the subsidy dropped from 50 BTC to 25 BTC. It took place after 10,500,000 coins entered circulation, which is half of the total Bitcoin supply limit. A year after this event, the BTC price exploded by 10,041%, from $12 to $1,217.

• Second halving: On July 9, 2016, the reward from every new Bitcoin block went from 25 BTC to 12.5 BTC.

At this point, the Bitcoin price was at $647. This Bitcoin halving event saw its price almost touch $20,000 on December 17, 2017.

Exactly 12 months later, its value plummeted to $3,276, an 83% crash. Despite the epic end to this amazing bull run, the bears never revisited the pre-halving price.

• Third halving: On May 11, 2020, Bitcoin halved the subsidy and began incentivizing miners 6.25 BTC per block. As expected, this one set the stage for another bull run.

From $8,787, Bitcoin recorded an all-time high of $68,680 one and a half years later. Unlike the previous two, BTC’s price action following this BTC halving didn’t include euphoric parabolic moves.

Benjamin Cowen, a crypto luminary, has argued that BTC is subject to the law of diminishing returns.

Also, he has theorized about the possibility that the Bitcoin cycle might have lengthened. His hypothesis could explain why the crypto’s price movement has been uncharacteristically tame after the third halving.

What Happens After the Last Bitcoin Halving?

It would take 64 halvings to release all 21 million BTC into the market. And crypto industry observers project it to take place around the year 2140.

As of May 2022, there are more than 19 million minted Bitcoin. So for the next 118 years, the amount of BTC miners could still “unearth” is less than 2 million. Nothing more, nothing less.

By the time the last Bitcoin halving rolls around, the subsidy will be minuscule. 

When BTC crosses the proverbial point of no return, it will stop subsidizing mining. And miners will have to rely solely on network fees to keep the lights on.

Despite losing one source of revenue, Bitcoin network participants should still be able to turn a profit. Living off network fees can be lucrative due to greater transaction volumes and higher BTC market prices.

Having said that, it’s impossible to foretell the exact economics of Bitcoin mining more than a century from now.

Believe it or not, this trailblazing cryptocurrency is still a work in progress. It continues to undergo key upgrades to soup up its overall functionality.

In 2140, the world will probably be unrecognizable to us. So, who’s to say that Bitcoin will have the same reward system in the distant future?

Its developers might entice miners to stay and keep validating Bitcoins through novel rewards. Or, BTC stakeholders might decide to adopt a different consensus mechanism. The possibilities are endless.

Unless a big paradigm shift happens, Bitcoin may still be the same crypto by the time we have colonies on Mars. And, as Nakamoto originally intended, its network participants could continue getting rewarded when there’s no subsidy left.

Wrap Up

Self-regulating coin issuance is among the many reasons why Bitcoin is such a revolutionary monetary system.

Crypto investors look forward to the halving since it helps identify the onset of the buying season. However, the real essence of this event is rendering minted BTC supply predictable and network participation rewarding.

This programmatic occurrence won’t last forever. But it won’t stop before bitcoin fully matures as an asset.